The Bank of Canada dropped its key lending rate by half a percentage point, and indicated that further cuts will be needed to insulate Canada from the effects of a U.S. economy that teeters on the brink of recession.
"The deterioration in economic and financial conditions in the United States can be expected to have significant spillover effects on the global economy," the central bank said in its statement Tuesday.
"Further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to achieve the 2 per cent inflation target over the medium term", the bank said.
Mark Carney's first policy decision as governor left the Bank of Canada's benchmark interest rate at 3.5 per cent. The central bank last reduced borrowing costs by a half point in November 2001 and has adjusted interest rates by that magnitude only four times since moving to a fixed announcement schedule in March 2000.